Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule To Institute a Derived Data API Service, 56258-56263 [2019-22836]
Download as PDF
<![CDATA[
56258
Federal Register / Vol. 84, No. 203 / Monday, October 21, 2019 / Notices
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
IEX–2019–11 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
[Release No. 34–87306; File No. SR–
CboeBZX–2019–087]
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–IEX–2019–11. This file
number should be included in the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Section, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing will also be available for
inspection and copying at the IEX’s
principal office and on its internet
website at www.iextrading.com. All
comments received will be posted
without change. Persons submitting
comments are cautioned that we do not
redact or edit personal identifying
information from comment submissions.
You should submit only information
that you wish to make available
publicly. All submissions should refer
to File Number SR–IEX–2019–11 and
should be submitted on or before
November 12, 2019.
khammond on DSKJM1Z7X2PROD with NOTICES
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–22837 Filed 10–18–19; 8:45 am]
BILLING CODE 8011–01–P
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend the
Fee Schedule To Institute a Derived
Data API Service
October 15, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
1, 2019, Cboe BZX Exchange, Inc.
(‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (‘‘BZX’’ or
the ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(the ‘‘Commission’’) a proposed rule
change to amend the fee schedule to
institute a Derived Data API Service.
The text of the proposed rule change is
attached as Exhibit 5 [sic].
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
23 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
16:52 Oct 18, 2019
2 17
Jkt 250001
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00099
Fmt 4703
Sfmt 4703
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to implement a pricing
structure that would reduce fees
charged to Distributors that distribute
Derived Data through an Application
Programming Interface (‘‘API’’)—i.e., the
Derived Data API Service (the
‘‘Program’’). The Exchange initially filed
to introduce the Program on August 1,
2019 (‘‘Initial Proposal’’) based on
customer demand, and in order to be
able to decrease the cost of Derived Data
to Distributors that wish to distribute
Derived Data through an API Service.3
The Initial Proposal was published in
the Federal Register on August 20,
2019,4 and the Commission received no
commenter letters on the proposal. The
Program remained in effect until the fee
change was temporarily suspended
pursuant to a suspension order (the
‘‘Suspension Order’’).5 The Suspension
Order also instituted proceedings to
determine whether to approve or
disapprove the Initial Proposal.6
The Exchange continues to believe
that it is in the best interest of its
customers and investors to permit the
distribution of Derived Data through an
API Service at a lower cost, and is
therefore filing again to reduce the fees
charged to Distributors that offer an API
Service. By reducing its pricing, the
Exchange hopes to be able to better
compete with top of book market data
products offered by other national
securities exchanges and the securities
information processors (‘‘SIPs’’). For the
reasons expressed both in this filing and
the Initial Proposal, the Exchange
believes that the Program is procompetitive, and otherwise consistent
with the Exchange Act. In sum, the
Exchange remains committed to
competing for business by offering both
high quality and cost effective data.
Continued operation of the Program
3 An ‘‘API Service’’ is a type of data feed
distribution in which a Distributor delivers an API
or similar distribution mechanism to a third-party
entity for use within one or more platforms. The
service allows Distributors to provide Derived Data
to a third-party entity for use within one or more
downstream platforms that are operated and
maintained by the third-party entity. The
Distributor maintains control of the entitlements,
but does not maintain technical control of the usage
or the display.
4 See Securities Exchange Act Release No. 86671
(August 14, 2019), 84 FR 43237 (August 20, 2019)
(SR–CboeBZX–2019–070).
5 See Securities Exchange Act Release No. 87125
(September 26, 2019) (SR–CboeBZX–2019–070)
(Federal Register publication pending).
6 Id.
E:\FR\FM\21OCN1.SGM
21OCN1
Federal Register / Vol. 84, No. 203 / Monday, October 21, 2019 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
would ultimately support that goal, and
indeed would foster additional
competition in the market for U.S.
equity market data.
Derived Data
‘‘Derived Data’’ is pricing data or
other data that (i) is created in whole or
in part from Exchange Data, (ii) is not
an index or financial product, and (iii)
cannot be readily reverse-engineered to
recreate Exchange Data or used to create
other data that is a reasonable facsimile
or substitute for Exchange Data. The
Exchange currently offers a Derived
Data White Label Service Program that
allows Distributors to benefit from
discounted fees when distributing
Derived Data taken from BZX Top,
which is a proprietary data product that
provides top of book quotations and
execution information for all equity
securities traded on the Exchange.7 The
current program is limited to the
distribution of Derived Data to
subscribers within a White Label
Service which is a type of hosted
display solution in which a Distributor
hosts, maintains, and controls a website
or platform on behalf of a third-party
entity.
When the Exchange filed to introduce
the White Label Service Program, a
number of Distributors contacted the
Exchange to inquire about offering a
similar program for API Services due to
demand for such products from their
end clients. The Derived Data API
Service would supplement the current
Derived Data White Label Service
Program by offering discounted fees for
Distributors that make Derived Data
available through an API, thereby
allowing Distributors to benefit from
reduced fees when distributing Derived
Data to subscribers that establish their
own platforms rather than relying on a
hosted display solution. In turn, the
Exchange believes that the Program
would allow Distributors to reach a
broader customer base that includes end
clients that desire more flexibility and
control over how Derived Data is used,
furthering both the distribution and cost
effectiveness of Exchange market data,
and allowing the Exchange to compete
for business that may otherwise go to its
competitors.
Although White Label Service
Platforms are valuable to certain end
clients that may not have the technology
or resources to build their own
applications to display Derived Data,
such products offer only an ‘‘off-theshelf’’ solution, as the platform is
ultimately designed and controlled by
the Distributor. Thus, subsequent to the
7 See
16:52 Oct 18, 2019
Current Fee Structure
The Exchange currently charges a fee
of $2,500 per month for external
distribution of BZX Top. In addition,
external distributors of BZX Top are
charged a fee of $4 per month for each
Professional User and $0.10 per month
for each Non-Professional User. The
Exchange also offers special pricing for
Derived Data provided through a White
Label Service, as mentioned above. This
service allows Distributors to make
Derived Data available on a platform
that is branded with a third-party brand,
or co-branded with a third party and a
Distributor.8 The White Label Service
Program can be used for a number of
different purposes, including the
display of information or data, or the
8 The Distributor maintains control of the
application’s data, entitlements and display.
Rule 13.8(c).
VerDate Sep<11>2014
introduction of the White Label Service
Program, Distributors have encouraged
the Exchange to offer a Program for API
Services that would provide greater
flexibility and control to end clients
who have already developed
applications and tools for servicing their
customers. Unlike the White Label
Service, where the Distributor is
responsible for developing an ‘‘off-theshelf’’ technology platform that is
standard and not designed specifically
for a particular client, the API Service
allows Distributors to use Exchange
market data to create financial
instruments, such as contracts for
difference, that are then offered via API
to end clients that can use that
information in one or more of their own
customized applications based on their
specific business needs and the needs of
their downstream users. The API
Service would therefore offer significant
advantages over the White Label Service
Program, and would provide another
alternative pricing option that
Distributors can choose to utilize (or
not) in their efforts to obtain high
quality and cost effective access to top
of book U.S. equities data to create
Derived Data.
With the implementation of the API
Service Program, the Exchange would
continue to offer the current White
Label Service Platform, thereby ensuring
that Distributors that prefer the design
or cost structure of that offering can
continue to reap the benefits of that
program. Offering additional programs
for Derived Data based on customer
demand and the ways in which Derived
Data is currently being utilized
enhances customer choice, and provides
alternatives to the market that would
otherwise not be available to
Distributors and their end clients.
Jkt 250001
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
56259
creation of derivative instruments,
primarily contracts for difference,9 but
is unavailable to Distributors that make
such information available through an
API. Such Distributors are not eligible
for discounted Derived Data pricing
today, and are instead liable for the fees
normally applicable for the distribution
of BZX Top, as listed at the beginning
of this paragraph.
Discounted Fees for Derived Data API
Service
As proposed, a Distributor that
provides a Derived Data API Service for
Derived Data taken from BZX Top
would be liable for the following fees
instead of the fees normally applicable
for the distribution of BZX Top. Instead
of the regular fee for external
distribution, Distributors would be
charged a tiered External Subscriber Fee
based on the number of API Service
Platforms (i.e., ‘‘External Subscribers’’)
that receive Derived Data from the
Distributor through a Derived Data API
Service.
As proposed, Distributors would
continue to be charged a fee of $2,500
per month for each External Subscriber
if the Distributor makes Derived Data
available to 1–5 External Subscribers.
Distributors that make Derived Data
available to additional External
Subscribers would benefit from
discounted pricing based on the number
of External Subscribers. Specifically, the
external distribution fee would be
lowered by 20% to $2,000 per month for
each External Subscriber if the
Distributor makes Derived Data
available to 6–20 External Subscribers,
and further lowered another 20% to
$1,500 per month for each External
Subscriber if the Distributor makes
Derived Data available to 21 or more
External Subscribers.
As is the case under the Derived Data
White Label Service, the External
Subscriber Fee would be nonprogressive and based on the number of
External Subscribers that receive
Derived Data from the Distributor. For
example, a Distributor providing
Derived Data based on BZX Top to six
External Subscribers that are API
Service Platforms would be charged a
monthly fee of $12,000 (i.e., 6 External
Subscribers × $2,000 each). The Derived
Data API Service, however, would allow
end clients to, at their discretion, choose
to use Derived Data in one or more
customized applications (e.g., mobile
9 A contract for difference is an agreement to
exchange the difference between the current value
of an asset and its future value. If the price
increases, the seller pays the buyer the amount of
the increase. If the price decreases, the buyer pays
the seller the amount of the decrease.
E:\FR\FM\21OCN1.SGM
21OCN1
56260
Federal Register / Vol. 84, No. 203 / Monday, October 21, 2019 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
application, website, terminal) without
incurring additional External Subscriber
fees. That is, the fees would be charged
per API Service, and not based in any
way on the number of applications used
by the end client to serve their
downstream users. By contrast, under
the White Label Service, end clients are
generally limited to a single platform
managed by the Distributor, rather than
uncontrolled access to an API, and
would be subject to the full External
Subscriber fee for access to that single
platform without the ability to offer
additional platforms for the same fee.
The Exchange would continue to
charge a monthly Professional User fee
of $4 per month for each Professional
User that accesses Derived Data through
an API Service. The current NonProfessional User fee of $0.10 per month
would be eliminated when participating
in the Derived Data API Service, further
reducing costs for Distributors that
provide access to such data to
downstream investors.
Financial Product Distribution Program
With the proposed introduction of the
Derived Data API Service, the Exchange
would bring together the Derived Data
White Label Service and Derived Data
API Service under the common heading
‘‘Financial Product Distribution
Program.’’ The Financial Product
Distribution Program would encompass
both of these products.
Similar to the Derived Data White
Label Service, the Derived Data API
Service would be entirely optional, in
that it applies only to Distributors that
opt to use Derived Data from BZX Top
to create an API Service, as described
herein. It does not impact or raise the
cost of any other Exchange product, nor
does it affect the cost of BZX Top,
except in instances where Derived Data
is made available on an API Service. A
Distributor that provides a White Label
Service or API Service for Derived Data
taken from BZX Top would be liable for
the fees associated with the White Label
Service or API Service instead of the
fees normally applicable for the
distribution of BZX Top. A Distributor
that provides a White Label Service or
API Service for BZX Top data that is not
Derived Data or distributes Derived Data
through a platform other than a White
Label Service or API Service would be
liable for the fees normally applicable
for the distribution of BZX Top.
Market Background
The market for top of book data is
highly competitive as national securities
exchanges compete both with each other
and with the SIPs to provide efficient,
reliable, and low cost data to a wide
VerDate Sep<11>2014
16:52 Oct 18, 2019
Jkt 250001
range of investors and market
participants. In fact, Regulation NMS
requires all U.S. equities exchanges to
provide their best bids and offers, and
executed transactions, to the two
registered SIPs for dissemination to the
public. Top of book data is therefore
widely available to investors today at a
relatively modest cost. National
securities exchanges may also
disseminate their own top of book data,
but no rule or regulation of the
Commission requires market
participants to purchase top of book
data from an exchange.
In an effort to widen distribution to
market participants that use equities
market data to compute pricing for
certain derivatives instruments, national
securities exchanges including the
Exchange, its affiliate, Cboe EDGX
Exchange Inc., and The Nasdaq Stock
Market LLC (‘‘Nasdaq’’) offer discounted
pricing for Derived Data that is created
using their top of book products. The
Program would therefore compete with
similar products offered by other
national securities exchanges that offer
discounted fees to market participants
that purchase Derived Data. Derived
Data is largely used to create derivative
instruments, such as contracts for
difference, rather than to trade equity
securities, and is often purchased by
market data customers outside of the
U.S. where such derivative instruments
are more commonly offered. As a result,
customers that purchase top of book
data to create Derived Data do not need
a consolidated quotation, and typically
only purchase top of book data to create
Derived Data from one source.
Customers therefore choose where to
obtain top of book data to create Derived
Data based on two factors: (1) Data
quality, i.e., how much the quoted
prices reflect the overall market for
particular securities, and (2) the cost of
obtaining that data. The Program would
allow the Exchange to better compete on
the second of these factors by reducing
the cost of market data charged to
Distributors that offer an API Service.
As explained, the Exchange filed the
Initial Proposal to introduce the
Program in August in order to provide
an attractive pricing option to
Distributors that wish to provide
Derived Data through an API Service
rather than a White Label Service due to
the advantages of this form of
distribution, including more flexibility
and control for end clients. Although
that filing was suspended by the
Commission, the Exchange believes that
its experience in offering the Program
while it was in effect reflect the
competitive nature of the market for the
creation and distribution of Derived
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
Data. Specifically, after the Exchange
initially reduced the fees charged for
API Services under the Initial Proposal,
it successfully onboarded one new
customer that switched from a
competitor product offered by Nasdaq
due to the attractive pricing.10 The
Exchange has also been discussing the
Program with a handful of additional
prospective clients that are interested in
offering API Services. Without the
proposed pricing discounts, the
Exchange believes that those customers
and prospective customers may not be
interested in purchasing top of book
data from the Exchange, and would
instead continue purchasing such data
from other national securities exchanges
or the SIPs, potentially at a higher cost
than would be available pursuant to the
Program. The Program has therefore
already been successful in increasing
competition for such market data, and
continued operation of the Program
would serve to both reduce fees for such
customers and to provide alternatives to
data and pricing offered by competitors.
Ultimately, the Exchange believes that it
is critical that it be allowed to compete
by offering attractive pricing to
customers as increasing the availability
of such products ensures continued
competition with alternative offerings.
Such competition may be constrained
when competitors are impeded from
offering alternative and cost effective
solutions to customers.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the objectives of Section 6 of the Act,11
in general, and furthers the objectives of
Section 6(b)(4),12 in particular, as it is
designed to provide for the equitable
allocation of reasonable dues, fees and
other charges among its members and
other recipients of Exchange data.
The Exchange also believes that the
proposed rule change is consistent with
Section 11(A) of the Act.13 Specifically,
the proposed rule change supports (i)
fair competition among brokers and
dealers, among exchange markets, and
between exchange markets and markets
other than exchange markets, and (ii)
the availability to brokers, dealers, and
investors of information with respect to
quotations for and transactions in
securities. In addition, the proposed
rule change is consistent with Rule 603
10 See Cboe Innovation Spotlight, ‘‘Invast
Global—An alternative prime broker,’’ available at
https://markets.cboe.com/us/equities/market_data_
products/spotlight.
11 15 U.S.C. 78f.
12 15 U.S.C. 78f(b)(4).
13 15 U.S.C. 78k–1.
E:\FR\FM\21OCN1.SGM
21OCN1
khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 84, No. 203 / Monday, October 21, 2019 / Notices
of Regulation NMS,14 which provides
that any national securities exchange
that distributes information with respect
to quotations for or transactions in an
NMS stock do so on terms that are not
unreasonably discriminatory.
In adopting Regulation NMS, the
Commission granted SROs and brokerdealers increased authority and
flexibility to offer new and unique
market data to the public. It was
believed that this authority would
expand the amount of data available to
consumers, and also spur innovation
and competition for the provision of
market data. The Exchange believes that
the proposed fee change would further
broaden the availability of U.S. equity
market data to investors, consistent with
the principles of Regulation NMS.
The Exchange operates in a highly
competitive environment. Indeed, there
are thirteen registered national
securities exchanges that trade U.S.
equities and offer associated top of book
market data products to their customers.
The national securities exchanges also
compete with the SIPs for market data
customers. The Commission has
repeatedly expressed its preference for
competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. Specifically, in Regulation
NMS, the Commission highlighted the
importance of market forces in
determining prices and SRO revenues
and, also, recognized that current
regulation of the market system ‘‘has
been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 15 The
proposed fee change is a result of the
competitive environment, as the
Exchange seeks to amend its fees to
attract additional subscribers for one of
its proprietary top of book data offerings
through the introduction of a Derived
Data API Service.
The Exchange believes that it is
reasonable to introduce reduced fees for
the use of Derived Data on API Services
as the proposed fee reduction would
facilitate cost effective access to market
information that is used primarily to
create certain derivative instruments
rather than to trade U.S. equity
securities. The fees that are the subject
of this rule filing are constrained by
competition, and it is this competition
that is driving the proposed fee change.
Indeed, the Program is designed to
allow the Exchange to compete more
14 See
17 CFR 242.603.
Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
15 See
VerDate Sep<11>2014
16:52 Oct 18, 2019
Jkt 250001
effectively for market data distributors
that purchase market information to
offer Derived Data to investors. The
existence of alternatives to the Program
ensures that the Exchange cannot set
unreasonable or unfairly discriminatory
fees, as subscribers are free to elect such
alternatives. That is, the Exchange
competes with other exchanges that
provide similar market data products
and pricing programs. Expanding the
availability of diverse competitive
products actually promotes additional
competition as it ensures that
alternative products from different
sources are readily available to
Distributors and the broader market.
The Exchange therefore believes that
introduction of pricing programs such
as the Derived Data API Service are not
only constrained by competition but
also ensure continued competition that
acts as a constraint on the pricing of
services provided by other national
securities exchanges and the SIPs.
Derived Data is primarily purchased
for the creation of certain derivative
instruments rather than for the trading
of U.S. equity securities. As a result,
Distributors of Derived Data do not need
a consolidated view of the market across
multiple exchanges, and generally
purchase such data from a single
exchange. If a competing exchange were
to charge less for a similar product than
the Exchange charges under the
proposed fee structure, prospective
subscribers may choose not subscribe to,
or cease subscribing to, the Program.
The Exchange believes that lowering the
cost of accessing Derived Data may
make the Exchange’s market
information more attractive, and
encourage additional Distributors to
subscribe to BZX Top market data
instead of competitor products.
Indeed, the Exchange has already
successfully onboarded one new
Distributor that has decided to purchase
top of book data from the Exchange to
create Derived Data rather than
purchasing top of book data from a
competitor exchange, and is in
discussions with a handful of other
Distributors that are interested in
procuring market data from the
Exchange due to the attractive pricing
offered pursuant to the Program.
Distributors can discontinue use at any
time and for any reason, including due
to an assessment of the reasonableness
of fees charged. Further, firms have a
wide variety of alternative market data
products from which to choose, such as
similar proprietary data products
offered by other national securities
exchanges, including those that choose
to offer discounted fees for the
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
56261
distribution of Derived Data in an effort
to compete for this business.
The proposed rule change would
provide an alternate fee structure for
providing BZX Top market data to
Distributors that make Derived Data
available to External Subscribers via API
Services. As proposed, if a Distributor
uses an API Service to distribute
Derived Data, the Distributor will be
charged a fee that is tiered based on the
number of External Subscribers that are
provided access to that data instead of
the higher fee normally charged for
external distribution. The Exchange
believes that this fee is equitable and
not unfairly discriminatory because the
Exchange will apply the same fees to
any similarly situated Distributors that
elect to participate in the Program based
on the number of External Subscribers
provided access to Derived Data through
an API Service, with Distributors
providing access to six or more External
Subscribers receiving a discount
compared to the current pricing
applicable for external distribution of
BZX Top.
The Exchange believes that it is
equitable and not unfairly
discriminatory to begin providing
discounted rates to Distributors that
provide access to at least six External
Subscribers as the discounted rates are
designed to incentivize firms to grow
the number of External Subscribers that
purchase Derived Data from the
Exchange. The Exchange understands
that Distributors that may provide this
sort of API Service typically serve a
relatively larger number of External
Subscribers, and would therefore be
able to meet the proposed threshold by
providing Derived Data taken from BZX
Top to those customers. The one current
subscriber that began participating in
the Program after the Initial Proposal
intends to provide Derived Data to
significantly more than six External
Subscribers.
The Exchange would also continue to
charge a small fee for Professional Users
but would eliminate Non-Professional
User fees for data provided under the
Program. The Exchange believes that it
is equitable and not unfairly
discriminatory to charge a fee for
Professional Users but no fee for NonProfessional Users. Non-Professional
Users are already subject to a heavily
discounted fee for BZX Top market data
relative to Professional Users.
Differential fees for Professional and
Non-Professional Users are widely used
by the Exchange and other exchanges
for their proprietary market data as this
reduces costs for retail investors and
makes market data more broadly
available. The Exchange believes that
E:\FR\FM\21OCN1.SGM
21OCN1
56262
Federal Register / Vol. 84, No. 203 / Monday, October 21, 2019 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
eliminating fees for Non-Professional
Users that access Derived Data from
Distributors pursuant to the Program is
consistent with longstanding precedent
indicating that it is consistent with the
Act to provide reasonable incentives to
retail investors that rely on the public
markets for their investment needs.
Further, the proposed fees will only
apply to Distributors that elect to
participate in the Program by
distributing Derived Data through an
API Service. BZX Top market data is
distributed and purchased on a
voluntary basis, in that neither the
Exchange nor market data distributors
are required by any rule or regulation to
make this data available. Distributors of
BZX Top are not required to participate
in the proposed Program, which is
merely an alternative option being
proposed by the Exchange to potentially
lower costs for market data that is
Derived Data. As previously explained,
the Exchange currently offers
discounted fees for Distributors that
distribute Derived Data on a While
Label Service. Expanding the universe
of customers that can benefit from
discounted fees for distributing Derived
Data would serve to further increase the
accessibility of the Exchange’s market
data products. Although the proposed
pricing for the Program differs from the
pricing currently in place for the White
Label Service Program, the Exchange
believes that its pricing reflects the
relative benefits provided to Distributors
that offer an API Service that allows end
clients to offer one or more customized
applications to their customers rather
than simply offering a single ‘‘off-theshelf’’ solution designed and controlled
by the Distributors. Indeed, the Program
was developed by the Exchange in
response to demand for such a product
for Distributors that believe that they
would be better able to serve their end
clients with an API Service. Distributors
that prefer the design or cost structure
of the White Label Service Program
would continue to be able to subscribe
to that offering. Based on customer
feedback, however, the Exchange
believes that the API Service Program
would be valuable to a number of
Distributors that have expressed interest
specifically in that offering.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would result
in any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange operates in a highly
competitive environment, and its ability
to price these data products is
VerDate Sep<11>2014
16:52 Oct 18, 2019
Jkt 250001
constrained by: (i) Competition among
exchanges that offer similar data
products, and pricing options, to their
customers; and (ii) the existence of
inexpensive real-time consolidated data
disseminated by the SIPs. Top of book
data is disseminated by both the SIPs
and the thirteen equities exchanges.
There are therefore a number of
alternative products available to market
participants and investors. In this
competitive environment potential
subscribers are free to choose which
competing product to purchase to
satisfy their need for market
information. Often, the choice comes
down to price, as broker-dealers or
vendors look to purchase the cheapest
top of book data product, or quality, as
market participants seek to purchase
data that represents significant market
liquidity. In order to better compete for
this segment of the market, the
Exchange is proposing to reduce fees
charged to Distributors that distribute
Derived Data through an API. The
Exchange believes that this would
facilitate greater access to such data,
ultimately benefiting investors that are
provided access to such data.
The proposed fees apply to data
derived from BZX Top, which is subject
to competition from both the SIPs and
exchanges that offer similar products,
including but not limited to those that
choose to provide similar pricing
options for Derived Data. A number of
national securities exchanges, including
the Exchange, its affiliated Cboe U.S.
equities exchanges, and Nasdaq offer
pricing discounts for Derived Data
today. These pricing programs reduce
the cost of accessing top of book market
information that is used, among other
things, to create derivative instruments
rather than to trade U.S. equity
securities. In order to better compete for
this segment of the market, the
Exchange is proposing to expand the
programs that it offers to include a
Derived Data API Service, allowing
additional market data customers to
benefit from discounted pricing. The
Exchange does not believe that the
proposed price reduction for Derived
Data offered through an API would
cause any unnecessary or inappropriate
burden on intermarket competition as
other exchanges and data vendors are
free to lower their prices to better
compete with the Exchange’s offering.
The Exchange believes that the
proposed rule change is pro-competitive
as it seeks to offer pricing incentives to
customers to better position the
Exchange as it competes to attract
additional market data subscribers.
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 16 and paragraph (f) of Rule
19b–4 17 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2019–087 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CboeBZX–2019–087. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
16 15
17 17
E:\FR\FM\21OCN1.SGM
U.S.C. 78s(b)(3)(A).
CFR 240.19b-4(f).
21OCN1
Federal Register / Vol. 84, No. 203 / Monday, October 21, 2019 / Notices
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBZX–2019–087 and
should be submitted on or before
November 12, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–22836 Filed 10–18–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87310; File No. SR–CBOE–
2019–086]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating To Move Certain
Rules in Chapter XXI of the Currently
Effective Rulebook to Proposed
Section F of Chapter 4 of the Shell
Structure for the Exchange’s Rulebook
That Will Become Effective Upon the
Migration of the Exchange’s Trading
Platform
October 15, 2019.
khammond on DSKJM1Z7X2PROD with NOTICES
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
3, 2019, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to move
certain Rules in Chapter XXI of the
currently effective Rulebook (‘‘current
Rulebook’’), which governs Government
securities options, to proposed Section
F of Chapter 4 of the shell structure for
the Exchange’s Rulebook that will
become effective upon the migration of
the Exchange’s trading platform to the
same system used by the Cboe Affiliated
Exchanges (as defined below) (‘‘shell
Rulebook’’). The text of the proposed
rule change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegal
RegulatoryHome.aspx), at the
Exchange’s Office of the Secretary, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
56263
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In 2016, the Exchange’s parent
company, Cboe Global Markets, Inc.
(formerly named CBOE Holdings, Inc.)
(‘‘Cboe Global’’), which is also the
parent company of Cboe C2 Exchange,
Inc. (‘‘C2’’), acquired Cboe EDGA
Exchange, Inc. (‘‘EDGA’’), Cboe EDGX
Exchange, Inc. (‘‘EDGX’’ or ‘‘EDGX
Options’’), Cboe BZX Exchange, Inc.
(‘‘BZX’’ or ‘‘BZX Options’’), and Cboe
BYX Exchange, Inc. (‘‘BYX’’ and,
together with Cboe Options, C2, EDGX,
EDGA, and BZX, the ‘‘Cboe Affiliated
Exchanges’’). The Cboe Affiliated
Exchanges are working to align certain
system functionality, retaining only
intended differences, between the Cboe
Affiliated Exchanges, in the context of a
technology migration. Cboe Options
intends to migrate its trading platform to
the same system used by the Cboe
Affiliated Exchanges, which the
Exchange expects to complete on
October 7, 2019. In connection with this
technology migration, the Exchange has
a shell Rulebook that resides alongside
its current Rulebook, which shell
Rulebook will contain the Rules that
will be in place upon completion of the
Cboe Options technology migration.
The Exchange proposes to relocate
certain rules in Chapter XXI, which
govern Government securities options,
to proposed Section F of Chapter 4 in
the shell Rulebook. The Exchange notes
that in addition to relocating certain
rules regarding Government securities
options to proposed Section F of
Chapter 4 in the shell Rulebook, the
proposed rule change deletes the rules
from the current Rulebook. The
proposed rule change relocates the rules
as follows:
Proposed rule
Current rule
Introductory paragraph under Section F heading ....................................
4.50 Definitions ......................................................................................
4.51 Designation of Government Security Options (Treasury Bonds
and Notes).
4.52 Approval of Underlying Treasury Securities for Specific Coupon
Options (Treasury Bonds and Notes).
4.53 Terms of Treasury Security Options (Treasury Bonds and Notes)
Introduction.
21.1 Definitions.
21.6 Designation of Government Security Options (Treasury Bonds
and Notes).
21.7 Approval of Underlying Treasury Securities for Specific Coupon
Options (Treasury Bonds and Notes).
21.8 Terms of Treasury Security Options (Treasury Bonds and
Notes).
21.9 Series of Treasury Security Options Open for Trading (Treasury
Bonds and Notes).
21.31 Special Rules for Treasury Bill Options.
4.54 Series of Treasury Security Options Open for Trading (Treasury
Bonds and Notes).
4.55 Special Rules for Treasury Bill Options .........................................
18 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
16:52 Oct 18, 2019
1 15
Jkt 250001
PO 00000
U.S.C. 78s(b)(1).
Frm 00104
Fmt 4703
2 17
Sfmt 4703
E:\FR\FM\21OCN1.SGM
CFR 240.19b–4.
21OCN1
]]>Agencies
[Federal Register Volume 84, Number 203 (Monday, October 21, 2019)]
[Notices]
[Pages 56258-56263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22836]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87306; File No. SR-CboeBZX-2019-087]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Fee Schedule To Institute a Derived Data API Service
October 15, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 1, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to amend the fee schedule to institute a Derived
Data API Service. The text of the proposed rule change is attached as
Exhibit 5 [sic].
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to implement a pricing
structure that would reduce fees charged to Distributors that
distribute Derived Data through an Application Programming Interface
(``API'')--i.e., the Derived Data API Service (the ``Program''). The
Exchange initially filed to introduce the Program on August 1, 2019
(``Initial Proposal'') based on customer demand, and in order to be
able to decrease the cost of Derived Data to Distributors that wish to
distribute Derived Data through an API Service.\3\ The Initial Proposal
was published in the Federal Register on August 20, 2019,\4\ and the
Commission received no commenter letters on the proposal. The Program
remained in effect until the fee change was temporarily suspended
pursuant to a suspension order (the ``Suspension Order'').\5\ The
Suspension Order also instituted proceedings to determine whether to
approve or disapprove the Initial Proposal.\6\
---------------------------------------------------------------------------
\3\ An ``API Service'' is a type of data feed distribution in
which a Distributor delivers an API or similar distribution
mechanism to a third-party entity for use within one or more
platforms. The service allows Distributors to provide Derived Data
to a third-party entity for use within one or more downstream
platforms that are operated and maintained by the third-party
entity. The Distributor maintains control of the entitlements, but
does not maintain technical control of the usage or the display.
\4\ See Securities Exchange Act Release No. 86671 (August 14,
2019), 84 FR 43237 (August 20, 2019) (SR-CboeBZX-2019-070).
\5\ See Securities Exchange Act Release No. 87125 (September 26,
2019) (SR-CboeBZX-2019-070) (Federal Register publication pending).
\6\ Id.
---------------------------------------------------------------------------
The Exchange continues to believe that it is in the best interest
of its customers and investors to permit the distribution of Derived
Data through an API Service at a lower cost, and is therefore filing
again to reduce the fees charged to Distributors that offer an API
Service. By reducing its pricing, the Exchange hopes to be able to
better compete with top of book market data products offered by other
national securities exchanges and the securities information processors
(``SIPs''). For the reasons expressed both in this filing and the
Initial Proposal, the Exchange believes that the Program is pro-
competitive, and otherwise consistent with the Exchange Act. In sum,
the Exchange remains committed to competing for business by offering
both high quality and cost effective data. Continued operation of the
Program
[[Page 56259]]
would ultimately support that goal, and indeed would foster additional
competition in the market for U.S. equity market data.
Derived Data
``Derived Data'' is pricing data or other data that (i) is created
in whole or in part from Exchange Data, (ii) is not an index or
financial product, and (iii) cannot be readily
reverse[hyphen]engineered to recreate Exchange Data or used to create
other data that is a reasonable facsimile or substitute for Exchange
Data. The Exchange currently offers a Derived Data White Label Service
Program that allows Distributors to benefit from discounted fees when
distributing Derived Data taken from BZX Top, which is a proprietary
data product that provides top of book quotations and execution
information for all equity securities traded on the Exchange.\7\ The
current program is limited to the distribution of Derived Data to
subscribers within a White Label Service which is a type of hosted
display solution in which a Distributor hosts, maintains, and controls
a website or platform on behalf of a third-party entity.
---------------------------------------------------------------------------
\7\ See Rule 13.8(c).
---------------------------------------------------------------------------
When the Exchange filed to introduce the White Label Service
Program, a number of Distributors contacted the Exchange to inquire
about offering a similar program for API Services due to demand for
such products from their end clients. The Derived Data API Service
would supplement the current Derived Data White Label Service Program
by offering discounted fees for Distributors that make Derived Data
available through an API, thereby allowing Distributors to benefit from
reduced fees when distributing Derived Data to subscribers that
establish their own platforms rather than relying on a hosted display
solution. In turn, the Exchange believes that the Program would allow
Distributors to reach a broader customer base that includes end clients
that desire more flexibility and control over how Derived Data is used,
furthering both the distribution and cost effectiveness of Exchange
market data, and allowing the Exchange to compete for business that may
otherwise go to its competitors.
Although White Label Service Platforms are valuable to certain end
clients that may not have the technology or resources to build their
own applications to display Derived Data, such products offer only an
``off-the-shelf'' solution, as the platform is ultimately designed and
controlled by the Distributor. Thus, subsequent to the introduction of
the White Label Service Program, Distributors have encouraged the
Exchange to offer a Program for API Services that would provide greater
flexibility and control to end clients who have already developed
applications and tools for servicing their customers. Unlike the White
Label Service, where the Distributor is responsible for developing an
``off-the-shelf'' technology platform that is standard and not designed
specifically for a particular client, the API Service allows
Distributors to use Exchange market data to create financial
instruments, such as contracts for difference, that are then offered
via API to end clients that can use that information in one or more of
their own customized applications based on their specific business
needs and the needs of their downstream users. The API Service would
therefore offer significant advantages over the White Label Service
Program, and would provide another alternative pricing option that
Distributors can choose to utilize (or not) in their efforts to obtain
high quality and cost effective access to top of book U.S. equities
data to create Derived Data.
With the implementation of the API Service Program, the Exchange
would continue to offer the current White Label Service Platform,
thereby ensuring that Distributors that prefer the design or cost
structure of that offering can continue to reap the benefits of that
program. Offering additional programs for Derived Data based on
customer demand and the ways in which Derived Data is currently being
utilized enhances customer choice, and provides alternatives to the
market that would otherwise not be available to Distributors and their
end clients.
Current Fee Structure
The Exchange currently charges a fee of $2,500 per month for
external distribution of BZX Top. In addition, external distributors of
BZX Top are charged a fee of $4 per month for each Professional User
and $0.10 per month for each Non-Professional User. The Exchange also
offers special pricing for Derived Data provided through a White Label
Service, as mentioned above. This service allows Distributors to make
Derived Data available on a platform that is branded with a third-party
brand, or co-branded with a third party and a Distributor.\8\ The White
Label Service Program can be used for a number of different purposes,
including the display of information or data, or the creation of
derivative instruments, primarily contracts for difference,\9\ but is
unavailable to Distributors that make such information available
through an API. Such Distributors are not eligible for discounted
Derived Data pricing today, and are instead liable for the fees
normally applicable for the distribution of BZX Top, as listed at the
beginning of this paragraph.
---------------------------------------------------------------------------
\8\ The Distributor maintains control of the application's data,
entitlements and display.
\9\ A contract for difference is an agreement to exchange the
difference between the current value of an asset and its future
value. If the price increases, the seller pays the buyer the amount
of the increase. If the price decreases, the buyer pays the seller
the amount of the decrease.
---------------------------------------------------------------------------
Discounted Fees for Derived Data API Service
As proposed, a Distributor that provides a Derived Data API Service
for Derived Data taken from BZX Top would be liable for the following
fees instead of the fees normally applicable for the distribution of
BZX Top. Instead of the regular fee for external distribution,
Distributors would be charged a tiered External Subscriber Fee based on
the number of API Service Platforms (i.e., ``External Subscribers'')
that receive Derived Data from the Distributor through a Derived Data
API Service.
As proposed, Distributors would continue to be charged a fee of
$2,500 per month for each External Subscriber if the Distributor makes
Derived Data available to 1-5 External Subscribers. Distributors that
make Derived Data available to additional External Subscribers would
benefit from discounted pricing based on the number of External
Subscribers. Specifically, the external distribution fee would be
lowered by 20% to $2,000 per month for each External Subscriber if the
Distributor makes Derived Data available to 6-20 External Subscribers,
and further lowered another 20% to $1,500 per month for each External
Subscriber if the Distributor makes Derived Data available to 21 or
more External Subscribers.
As is the case under the Derived Data White Label Service, the
External Subscriber Fee would be non-progressive and based on the
number of External Subscribers that receive Derived Data from the
Distributor. For example, a Distributor providing Derived Data based on
BZX Top to six External Subscribers that are API Service Platforms
would be charged a monthly fee of $12,000 (i.e., 6 External Subscribers
x $2,000 each). The Derived Data API Service, however, would allow end
clients to, at their discretion, choose to use Derived Data in one or
more customized applications (e.g., mobile
[[Page 56260]]
application, website, terminal) without incurring additional External
Subscriber fees. That is, the fees would be charged per API Service,
and not based in any way on the number of applications used by the end
client to serve their downstream users. By contrast, under the White
Label Service, end clients are generally limited to a single platform
managed by the Distributor, rather than uncontrolled access to an API,
and would be subject to the full External Subscriber fee for access to
that single platform without the ability to offer additional platforms
for the same fee.
The Exchange would continue to charge a monthly Professional User
fee of $4 per month for each Professional User that accesses Derived
Data through an API Service. The current Non-Professional User fee of
$0.10 per month would be eliminated when participating in the Derived
Data API Service, further reducing costs for Distributors that provide
access to such data to downstream investors.
Financial Product Distribution Program
With the proposed introduction of the Derived Data API Service, the
Exchange would bring together the Derived Data White Label Service and
Derived Data API Service under the common heading ``Financial Product
Distribution Program.'' The Financial Product Distribution Program
would encompass both of these products.
Similar to the Derived Data White Label Service, the Derived Data
API Service would be entirely optional, in that it applies only to
Distributors that opt to use Derived Data from BZX Top to create an API
Service, as described herein. It does not impact or raise the cost of
any other Exchange product, nor does it affect the cost of BZX Top,
except in instances where Derived Data is made available on an API
Service. A Distributor that provides a White Label Service or API
Service for Derived Data taken from BZX Top would be liable for the
fees associated with the White Label Service or API Service instead of
the fees normally applicable for the distribution of BZX Top. A
Distributor that provides a White Label Service or API Service for BZX
Top data that is not Derived Data or distributes Derived Data through a
platform other than a White Label Service or API Service would be
liable for the fees normally applicable for the distribution of BZX
Top.
Market Background
The market for top of book data is highly competitive as national
securities exchanges compete both with each other and with the SIPs to
provide efficient, reliable, and low cost data to a wide range of
investors and market participants. In fact, Regulation NMS requires all
U.S. equities exchanges to provide their best bids and offers, and
executed transactions, to the two registered SIPs for dissemination to
the public. Top of book data is therefore widely available to investors
today at a relatively modest cost. National securities exchanges may
also disseminate their own top of book data, but no rule or regulation
of the Commission requires market participants to purchase top of book
data from an exchange.
In an effort to widen distribution to market participants that use
equities market data to compute pricing for certain derivatives
instruments, national securities exchanges including the Exchange, its
affiliate, Cboe EDGX Exchange Inc., and The Nasdaq Stock Market LLC
(``Nasdaq'') offer discounted pricing for Derived Data that is created
using their top of book products. The Program would therefore compete
with similar products offered by other national securities exchanges
that offer discounted fees to market participants that purchase Derived
Data. Derived Data is largely used to create derivative instruments,
such as contracts for difference, rather than to trade equity
securities, and is often purchased by market data customers outside of
the U.S. where such derivative instruments are more commonly offered.
As a result, customers that purchase top of book data to create Derived
Data do not need a consolidated quotation, and typically only purchase
top of book data to create Derived Data from one source. Customers
therefore choose where to obtain top of book data to create Derived
Data based on two factors: (1) Data quality, i.e., how much the quoted
prices reflect the overall market for particular securities, and (2)
the cost of obtaining that data. The Program would allow the Exchange
to better compete on the second of these factors by reducing the cost
of market data charged to Distributors that offer an API Service.
As explained, the Exchange filed the Initial Proposal to introduce
the Program in August in order to provide an attractive pricing option
to Distributors that wish to provide Derived Data through an API
Service rather than a White Label Service due to the advantages of this
form of distribution, including more flexibility and control for end
clients. Although that filing was suspended by the Commission, the
Exchange believes that its experience in offering the Program while it
was in effect reflect the competitive nature of the market for the
creation and distribution of Derived Data. Specifically, after the
Exchange initially reduced the fees charged for API Services under the
Initial Proposal, it successfully onboarded one new customer that
switched from a competitor product offered by Nasdaq due to the
attractive pricing.\10\ The Exchange has also been discussing the
Program with a handful of additional prospective clients that are
interested in offering API Services. Without the proposed pricing
discounts, the Exchange believes that those customers and prospective
customers may not be interested in purchasing top of book data from the
Exchange, and would instead continue purchasing such data from other
national securities exchanges or the SIPs, potentially at a higher cost
than would be available pursuant to the Program. The Program has
therefore already been successful in increasing competition for such
market data, and continued operation of the Program would serve to both
reduce fees for such customers and to provide alternatives to data and
pricing offered by competitors. Ultimately, the Exchange believes that
it is critical that it be allowed to compete by offering attractive
pricing to customers as increasing the availability of such products
ensures continued competition with alternative offerings. Such
competition may be constrained when competitors are impeded from
offering alternative and cost effective solutions to customers.
---------------------------------------------------------------------------
\10\ See Cboe Innovation Spotlight, ``Invast Global--An
alternative prime broker,'' available at https://markets.cboe.com/us/equities/market_data_products/spotlight.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\11\ in general, and
furthers the objectives of Section 6(b)(4),\12\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its members and other recipients of
Exchange data.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange also believes that the proposed rule change is
consistent with Section 11(A) of the Act.\13\ Specifically, the
proposed rule change supports (i) fair competition among brokers and
dealers, among exchange markets, and between exchange markets and
markets other than exchange markets, and (ii) the availability to
brokers, dealers, and investors of information with respect to
quotations for and transactions in securities. In addition, the
proposed rule change is consistent with Rule 603
[[Page 56261]]
of Regulation NMS,\14\ which provides that any national securities
exchange that distributes information with respect to quotations for or
transactions in an NMS stock do so on terms that are not unreasonably
discriminatory.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78k-1.
\14\ See 17 CFR 242.603.
---------------------------------------------------------------------------
In adopting Regulation NMS, the Commission granted SROs and broker-
dealers increased authority and flexibility to offer new and unique
market data to the public. It was believed that this authority would
expand the amount of data available to consumers, and also spur
innovation and competition for the provision of market data. The
Exchange believes that the proposed fee change would further broaden
the availability of U.S. equity market data to investors, consistent
with the principles of Regulation NMS.
The Exchange operates in a highly competitive environment. Indeed,
there are thirteen registered national securities exchanges that trade
U.S. equities and offer associated top of book market data products to
their customers. The national securities exchanges also compete with
the SIPs for market data customers. The Commission has repeatedly
expressed its preference for competition over regulatory intervention
in determining prices, products, and services in the securities
markets. Specifically, in Regulation NMS, the Commission highlighted
the importance of market forces in determining prices and SRO revenues
and, also, recognized that current regulation of the market system
``has been remarkably successful in promoting market competition in its
broader forms that are most important to investors and listed
companies.'' \15\ The proposed fee change is a result of the
competitive environment, as the Exchange seeks to amend its fees to
attract additional subscribers for one of its proprietary top of book
data offerings through the introduction of a Derived Data API Service.
---------------------------------------------------------------------------
\15\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
The Exchange believes that it is reasonable to introduce reduced
fees for the use of Derived Data on API Services as the proposed fee
reduction would facilitate cost effective access to market information
that is used primarily to create certain derivative instruments rather
than to trade U.S. equity securities. The fees that are the subject of
this rule filing are constrained by competition, and it is this
competition that is driving the proposed fee change. Indeed, the
Program is designed to allow the Exchange to compete more effectively
for market data distributors that purchase market information to offer
Derived Data to investors. The existence of alternatives to the Program
ensures that the Exchange cannot set unreasonable or unfairly
discriminatory fees, as subscribers are free to elect such
alternatives. That is, the Exchange competes with other exchanges that
provide similar market data products and pricing programs. Expanding
the availability of diverse competitive products actually promotes
additional competition as it ensures that alternative products from
different sources are readily available to Distributors and the broader
market. The Exchange therefore believes that introduction of pricing
programs such as the Derived Data API Service are not only constrained
by competition but also ensure continued competition that acts as a
constraint on the pricing of services provided by other national
securities exchanges and the SIPs.
Derived Data is primarily purchased for the creation of certain
derivative instruments rather than for the trading of U.S. equity
securities. As a result, Distributors of Derived Data do not need a
consolidated view of the market across multiple exchanges, and
generally purchase such data from a single exchange. If a competing
exchange were to charge less for a similar product than the Exchange
charges under the proposed fee structure, prospective subscribers may
choose not subscribe to, or cease subscribing to, the Program. The
Exchange believes that lowering the cost of accessing Derived Data may
make the Exchange's market information more attractive, and encourage
additional Distributors to subscribe to BZX Top market data instead of
competitor products.
Indeed, the Exchange has already successfully onboarded one new
Distributor that has decided to purchase top of book data from the
Exchange to create Derived Data rather than purchasing top of book data
from a competitor exchange, and is in discussions with a handful of
other Distributors that are interested in procuring market data from
the Exchange due to the attractive pricing offered pursuant to the
Program. Distributors can discontinue use at any time and for any
reason, including due to an assessment of the reasonableness of fees
charged. Further, firms have a wide variety of alternative market data
products from which to choose, such as similar proprietary data
products offered by other national securities exchanges, including
those that choose to offer discounted fees for the distribution of
Derived Data in an effort to compete for this business.
The proposed rule change would provide an alternate fee structure
for providing BZX Top market data to Distributors that make Derived
Data available to External Subscribers via API Services. As proposed,
if a Distributor uses an API Service to distribute Derived Data, the
Distributor will be charged a fee that is tiered based on the number of
External Subscribers that are provided access to that data instead of
the higher fee normally charged for external distribution. The Exchange
believes that this fee is equitable and not unfairly discriminatory
because the Exchange will apply the same fees to any similarly situated
Distributors that elect to participate in the Program based on the
number of External Subscribers provided access to Derived Data through
an API Service, with Distributors providing access to six or more
External Subscribers receiving a discount compared to the current
pricing applicable for external distribution of BZX Top.
The Exchange believes that it is equitable and not unfairly
discriminatory to begin providing discounted rates to Distributors that
provide access to at least six External Subscribers as the discounted
rates are designed to incentivize firms to grow the number of External
Subscribers that purchase Derived Data from the Exchange. The Exchange
understands that Distributors that may provide this sort of API Service
typically serve a relatively larger number of External Subscribers, and
would therefore be able to meet the proposed threshold by providing
Derived Data taken from BZX Top to those customers. The one current
subscriber that began participating in the Program after the Initial
Proposal intends to provide Derived Data to significantly more than six
External Subscribers.
The Exchange would also continue to charge a small fee for
Professional Users but would eliminate Non-Professional User fees for
data provided under the Program. The Exchange believes that it is
equitable and not unfairly discriminatory to charge a fee for
Professional Users but no fee for Non-Professional Users. Non-
Professional Users are already subject to a heavily discounted fee for
BZX Top market data relative to Professional Users. Differential fees
for Professional and Non-Professional Users are widely used by the
Exchange and other exchanges for their proprietary market data as this
reduces costs for retail investors and makes market data more broadly
available. The Exchange believes that
[[Page 56262]]
eliminating fees for Non-Professional Users that access Derived Data
from Distributors pursuant to the Program is consistent with
longstanding precedent indicating that it is consistent with the Act to
provide reasonable incentives to retail investors that rely on the
public markets for their investment needs.
Further, the proposed fees will only apply to Distributors that
elect to participate in the Program by distributing Derived Data
through an API Service. BZX Top market data is distributed and
purchased on a voluntary basis, in that neither the Exchange nor market
data distributors are required by any rule or regulation to make this
data available. Distributors of BZX Top are not required to participate
in the proposed Program, which is merely an alternative option being
proposed by the Exchange to potentially lower costs for market data
that is Derived Data. As previously explained, the Exchange currently
offers discounted fees for Distributors that distribute Derived Data on
a While Label Service. Expanding the universe of customers that can
benefit from discounted fees for distributing Derived Data would serve
to further increase the accessibility of the Exchange's market data
products. Although the proposed pricing for the Program differs from
the pricing currently in place for the White Label Service Program, the
Exchange believes that its pricing reflects the relative benefits
provided to Distributors that offer an API Service that allows end
clients to offer one or more customized applications to their customers
rather than simply offering a single ``off-the-shelf'' solution
designed and controlled by the Distributors. Indeed, the Program was
developed by the Exchange in response to demand for such a product for
Distributors that believe that they would be better able to serve their
end clients with an API Service. Distributors that prefer the design or
cost structure of the White Label Service Program would continue to be
able to subscribe to that offering. Based on customer feedback,
however, the Exchange believes that the API Service Program would be
valuable to a number of Distributors that have expressed interest
specifically in that offering.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
operates in a highly competitive environment, and its ability to price
these data products is constrained by: (i) Competition among exchanges
that offer similar data products, and pricing options, to their
customers; and (ii) the existence of inexpensive real-time consolidated
data disseminated by the SIPs. Top of book data is disseminated by both
the SIPs and the thirteen equities exchanges. There are therefore a
number of alternative products available to market participants and
investors. In this competitive environment potential subscribers are
free to choose which competing product to purchase to satisfy their
need for market information. Often, the choice comes down to price, as
broker-dealers or vendors look to purchase the cheapest top of book
data product, or quality, as market participants seek to purchase data
that represents significant market liquidity. In order to better
compete for this segment of the market, the Exchange is proposing to
reduce fees charged to Distributors that distribute Derived Data
through an API. The Exchange believes that this would facilitate
greater access to such data, ultimately benefiting investors that are
provided access to such data.
The proposed fees apply to data derived from BZX Top, which is
subject to competition from both the SIPs and exchanges that offer
similar products, including but not limited to those that choose to
provide similar pricing options for Derived Data. A number of national
securities exchanges, including the Exchange, its affiliated Cboe U.S.
equities exchanges, and Nasdaq offer pricing discounts for Derived Data
today. These pricing programs reduce the cost of accessing top of book
market information that is used, among other things, to create
derivative instruments rather than to trade U.S. equity securities. In
order to better compete for this segment of the market, the Exchange is
proposing to expand the programs that it offers to include a Derived
Data API Service, allowing additional market data customers to benefit
from discounted pricing. The Exchange does not believe that the
proposed price reduction for Derived Data offered through an API would
cause any unnecessary or inappropriate burden on intermarket
competition as other exchanges and data vendors are free to lower their
prices to better compete with the Exchange's offering. The Exchange
believes that the proposed rule change is pro-competitive as it seeks
to offer pricing incentives to customers to better position the
Exchange as it competes to attract additional market data subscribers.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \16\ and paragraph (f) of Rule 19b-4 \17\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeBZX-2019-087 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeBZX-2019-087. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the
[[Page 56263]]
proposed rule change between the Commission and any person, other than
those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-CboeBZX-2019-087 and should
be submitted on or before November 12, 2019.
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22836 Filed 10-18-19; 8:45 am]
BILLING CODE 8011-01-P
